BRAC s Business Development Services do they pay?

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1 BRAC s Business Development Services do they pay? SHANTANA R. HALDER As well as providing financial services, BRAC (Bangladesh Rural Advancement Committee) offers members of its Rural Development Programme wishing to start businesses in a range of sectors a package of skills training, input supply and technical assistance. This paper examines two issues: the impact of skills development training and other BDS on women s income growth, and the costeffectiveness of BDS from both the service providers as well as the service recipients point of view. Results show that, as well as benefiting from credit, those who received skills training in their chosen activities earned significantly higher income than those who did not. Regarding cost-effectiveness, case study results show that, for the service recipients, the additional amount gained through their new business exceeds by many times the amount paid to BRAC as a service fee, so for the service recipients BRAC is highly costeffective. On the other hand, for BRAC, the amount it charges covers only 47 per cent of its total cost. Microenterprise development services are as important as microfinance for the poor to maximize their returns BANGLADESH IS A COUNTRY with a population of about 130 million, almost half of whom have incomes below the poverty line (World Bank, 2002). High unemployment and under-employment and low productivity of the poor are considered to be the major determinants of their poverty. Unemployment can be reduced, however, by creating jobs. Similarly, investment in human and physical capital has a key role in increasing human productivity (Khandker, 1998). From 1972, BRAC has been working with the poor over the last few decades and as a poverty alleviation strategy it follows a holistic approach of creating an enabling environment in which the poor can realize their full potential. Along with microcredit, the poverty alleviation programme of BRAC includes social mobilization, organizational development, health care and children s education (see Chowdhury and Alam, 1997; Abed, 2000). The Employment and Income Generation programme is a very important component of BRAC s development activities, aiming to increase the income of the poor by creating new employment opportunities and for them and increasing productivity by the effective use of scarce resources and the adoption of new technology. BRAC believes that although microfinancial services are necessary for breaking the cycle of poverty, providing microenterprise development services are as important for the poor to maximize the returns on their investments. Unlike standard business development programmes, which offer a mix of generic training and marketing services, BRAC has developed an integrated sector-specific approach to enterprise development for poor illiterate women who lack adequate knowledge and technical know- Shantana Halder is the Senior Research Economist, Research and Evaluation Division, BRAC, Bangladesh. 26 June 2003 Small Enterprise Development Vol.14 No.2

2 Table 1. BRAC s sector programmes Sectors Activities No. of entrepreneurs Poultry and livestock Agriculture extension Fisheries Social forestry Sericulture Rural Enterprise Project (REP) and NEER Vegetable export Total Source: BRAC RDP MIS Poultry and livestock extension work, chick rearing, key rearing (improved method), cage rearing, feed selling, minihatchery, pullet rearing, egg collecting, beef fattening, cow and goat rearing, artificial insemination, fodder cultivation. Vegetable cultivation, maize cultivation, cotton-crop diversification, hybrid seed production, processing and marketing, tissue culture. Pond aquaculture development and extension, fish and prawn nursery, low-cost fish hatchery, pond re-excavation and reconstruction, experimental and development activities, marginal fish farm, large water-body fisheries development programme. Timbers and fruit nursery, grafting nursery, roadside plantation, agro-forestry, block plantation. Mulberry-tree cultivation, silk-worm rearing, disease-free larvae production, cocoon dying and reeling, silk weaving. Solar power, bio-gas, improved stoves, salt production, riceseed production, net making, microenterprise development, api-culture, guest house, grocery shop, laundry, tailoring, carpentry. French bean, green chilli, potato, long bean, broccoli, kantola and bitter gourd cultivation BRAC s BDS services cover the whole of Bangladesh how on how to operate an enterprise successfully. It provides them with credit, trains them in improved techniques, provides them with improved breeds and technologies, and supplies them on a continuous basis with technical assistance, the necessary inputs, monitoring, problem solving and marketing of the finished goods. The Employment and Income Generation programme consists of mainly six broad sectors in which a large number of low-income women can productively engage, in or near their houses: poultry, fishery, livestock, sericulture, agriculture and agro-forestry. In addition, BRAC also supports rural women in running a range of non-farm enterprises, such as grocery stores, tailoring shops, restaurants and laundry shops. Table 1 presents a list of major activities carried out under each sector. According to BRAC Rural Development Programme management information data, by 1994 BRAC provided BDS services to around 0.88 million MSEs (microenterprises and small businesses). In recent years BRAC has diversified its sector activities by adding many new components and has also expanded its geographical coverage to the whole of Bangladesh, both urban and rural areas. By the end of December 2000, BRAC services reached more than 2 million microenterprises and small businesses. BRAC s skill development training is a major part of its services, and is Small Enterprise Development Vol.14 No.2 June

3 The most promising women are equipped to become private extension workers How much does BRAC s skill development training contribute to women s income? an on-going process covering a wide range of activities. First of all a group of women interested in carrying out certain activities is selected for 3 7 days of basic skill development training at a BRAC area office or some other place convenient to them. The specialized BRAC staff conduct the training sessions, focusing mainly on how to carry out certain businesses, the use of technology and marketing products. After training, women are provided with credit, technological know-how and other inputs, continuous monitoring and follow-up supports, and other extension services. BRAC also organizes monthly refresher courses for them, where necessary, to update their knowledge. For easy access to extension services the best performers in the particular field are selected and provided with special training and monthly refreshers to provide ongoing technical support to other independent entrepreneurs. These private extension workers are equipped with technical know-how including modern inputs. BRAC field staff make regular contacts with the private extension workers to update their knowledge on the current field situation. The field staff also visit the entrepreneurs directly to monitor and verify the information received through the extension workers and also to provide other technical support that the extension workers cannot provide. The sector specialists also visit the enterprises directly and provide technical assistance if necessary. This paper looks into the role of BRAC s skill development training and other BDS in increasing women s income and tries to estimate the net contribution of BDS over costs paid by its receivers. It also tries to find out whether additional costs paid by BDS receivers is justified over their net annual gain compared to those of non-bds receivers. Methodology The study measures only the contribution of BRAC s skill development training to women s income, although the BRAC package covers a wide range of services such as the supply of modern technology and inputs, regular monitoring and supervision, marketing assistance, skills training and credit. It is assumed that once a woman is selected for enterprise development training, she will have access to the whole package of extension services on offer to her. For measuring the impact of skill development training on participants households the study used household survey data collected in September October 1996 on 1268 of BRAC s Village Organization (VO) members selected through multi-cluster random sampling. The sample was drawn from all BRAC s rural development programme beneficiaries, without regard to their depth of participation. Data were collected on length of membership, involvement in income-generating activities, current gross annual income from the given activities and whether they received any formal training from BRAC on activities they were involved in along with credit. It was found that around 52 per cent of the respondent VO members were participating in income-earning activities and around 43 per cent (543 members) were engaged in different self-managed productive activities. The data on these 543 member households was used to find out whether BDS made any significant contribution to their income level. For measuring the cost-effectiveness of BRAC-provided BDS from both the supplier s and recipients points of view, both the primary and secondary data collected by BRAC s Research and Evaluation Division on BRAC s sericulture, carp polyculture, broiler rearing and tailoring programmes have been used. The data on sericulture covered 492 programme 28 June 2003 Small Enterprise Development Vol.14 No.2

4 Only BRAC s training costs, which had not been paid for by the trainees, were included in the costeffectiveness calculation households, randomly selected from 10 BRAC programme areas covering all of its five programme components, namely plantation, rearing, reeling, weaving and spinning. Data on carp polyculture were collected from 106 randomly selected programme participants in nine programme areas of Jessore, Jhinaidah and Kushtia districts. Data on broiler rearing were collected from 102 farmer households randomly selected from all programme areas. Tailoring data covered all the 97 female members who opened their shops in Khulna and Gopalganj regions where the programme was initiated. Costs of BDS provided by BRAC were calculated based on available secondary information sources. For the latter, consultations with BRAC development programme (BDP) staff and other concerned persons were made to validate the data. In the cost analysis of services provided by BRAC, the cost of credit provision is not included, based on assumption that the service charges realized for the amount disbursed covers its total transaction costs. It also did not include the cost of providing inputs which have already been included in its retail price. The cost-effectiveness of BRAC-provided services is, thus, the ratio of the benefits to the clients (i.e. increased net income derived from enterprise resulting from the service) to the costs incurred by BRAC in the delivery of the service to the enterprise. The latter includes the costs of: selecting beneficiaries, providing them with skills training and follow-up. The selection of clients and training are the initial tasks, performed once at the beginning of a programme. Although the costs of this initial work were significant, considering the long-term benefits of such investment, the depreciation costs are very low, around 5 per cent of total annual costs. Thus, the costs of training are measured by dividing the total costs of initial training by the total number of years or cycles within which the knowledge gained is expected to be of use. In the cost-benefit analysis for a given enterprise, the costs of capital inflow from any sources were not included like any other opportunity costs. Contribution of skill development training on income Among the 543 BRAC Rural Development Programme VO members currently involved in self-managed enterprises, 30 per cent were full-time housewives before joining BRAC, when they started their ventures. On Table 2. Distribution of women among types of incomegenerating activity (as a percentage of women in sample) Types of IGAs Number involved Net change (%) Present Pre-BRAC Poultry 280 (51.6) 201 (37.0) 39.3 Livestock 187 (34.4) 88 (16.2) Rural trading 82 (15.1) 36 (6.6) Stitching 166 (30.6) 125 (23.0) 32.8 Vegetable growing 38 (7.0) 20 (3.7) 90.0 Total Source: Impact Assessment Study II of BRAC s Rural Development Programme , BRAC. Small Enterprise Development Vol.14 No.2 June

5 Table 3. Differences in endowments by the status of training received Indicators Without training With training Total Pre-BRAC landholding (decimals) Household size (No.) * 4.90 Average age of VO members (years) Literacy rate of VO members (%) ** 22.5 Source: Impact Assessment Study II of BRAC s Rural Development Programme , BRAC. ** significant at 5% level, * significant at 10% level average, one person was involved in 1.39 self-managed income-earning activities. Poultry rearing, stitching quilts and tailoring are the most traditional forms of activities for women and still remain predominant areas for women s employment (Table 2). Livestock has increased in popularity and now stands in second position, while quilt stitching has shifted from second to third position. Trading was at first considered to be a male domain, but over time more and more women came forward to get involved in this sector. Over all activities, 43 per cent of women became involved in an activity for the first time after joining. The net change in involvement was highest for rural trading (128 per cent) and livestock (113 per cent), followed by vegetable cultivation (90 per cent), poultry keeping (39 per cent) and stitching (33 per cent). Only a quarter of the 543 respondents received skills development training for their businesses, and the group which had received training was compared with the group that had not in a number of ways. Compared to the without-training group, the with-training group had a lower initial endowment base, owning less land and belonging to larger households. The average age of the entrepreneur women was about 34 years, with no major differences between these two groups. Although the literacy rate of women receiving skills training was higher, the average rate for both of these two groups was very low: 20 and 30 per cent respectively (Table 3). Among the women entrepreneurs, 65 per cent were involved in only one earning activity; the rest ran more than one business. Though multiple businesses were higher among the with training group, the difference was not statistically significant. Gross annual income of the with training group, irrespective of their numbers of activities, was double the income of the without training group (Table 4). The business type also had significant impact on income level. An analysis has been done to find out whether there was any difference in the income level of any specific sector by controlling training and numbers of Table 4. Income differentials by number of IGAs involved and training received Number of Number (%) of respondents Gross annual income (US$) businesses W/o training With training Total W/o training With training Total Single 289 (69.8) 62 (48.1) 351 (64.6) *** 102 Multiple 125 (30.2) 67 (51.9) 192 (35.4) * 189 Total 414 (76.2) 129 (23.8) 543 (100) *** 133 Source: Impact Assessment Study II of BRAC s Rural Development Programme , BRAC *** significant at 1% level, * significant at 10% level 30 June 2003 Small Enterprise Development Vol.14 No.2

6 Table 5. Income differentials of those involved in single activities by types of involvement and training received Types of IGAs No. of respondents % received training Annual income (US$) W/out training With training Poultry *** Livestock Rural trading Stitching ** Vegetables growing ** Total *** Source: Impact Assessment Study II of BRAC s Rural Development Programme , BRAC *** significant at 1% level, ** significant at 5% level. Women with skills training had a higher level of income, whatever their business sector involvement (Table 5). Overall results show a higher level of income for women with skills training, irrespective of their involvement in any specific sector. The differences were also significant at the 1 per cent level for poultry and vegetable growing and at the 5 per cent level for stitching. The volume of income also depends on the scale of operation, and this in turn is highly correlated with the volume of investment. Most BRAC VO members come from the poorer sections of the rural population, with poor asset bases or none at all, and due to liquidity constraints their capacity remains underused. It is assumed that the provision of microcredit meets their current demand for working capital and, therefore, reduces their dependency on informal capital sources. An attempt was made to find out whether credit in combination with skills training is more effective or whether credit alone is what is needed to increase income levels. Among all members receiving credit, the income of those who received skills training was almost double, indicating the positive contribution of skills training along with credit in increasing human productivity (Table 6). Determinants of income Although capital and technological innovation are two major driving forces for productivity growth (Funk and Strauss, 2000), the entrepreneur s ability to manage her work, household resource base and the availability of surplus labour within the household may also influence the outcome. To know the contribution of each and every factor a multivariate analysis was done which identified the household resource base defined by net worth as the central force for all, irrespective of numbers of activities. The size of loan made a significant contribution to women who were involved in multiple businesses. Similarly, women need help from other household members to look after their businesses due to a lack of time. For women who run multiple businesses the availability of family help is very important, since they lack enough free time to run the business after carrying out all the household work. Results also show that although family size was important for everyone, the impact of it was more significant for women running multiple businesses. By controlling all variables the impact of skills training was found to be highly significant, irrespective of the volume of business. Years of schooling are highly Small Enterprise Development Vol.14 No.2 June

7 correlated with the successful adoption of new technology promoted by BRAC, and the proper use of knowledge gained through skill training. The impact of education on income was also found to be positive. Business type has a significant impact on income. As mentioned earlier, all activities are broadly divided into five categories: namely poultry and livestock rearing, trading, stitching and vegetable growing. Results show that among women running single business, the income of women involved in cattle and goat rearing was US$103 higher than income from poultry keeping. The highest income came from small trading and the lowest from poultry rearing. Contribution of BDS to productivity: results of other studies To ensure the availability of dayold chicks and highquality feed, BRAC established a number of poultry farms and feed mills In 1998 and 1999 several case studies were conducted on BRAC women members involved in silk-worm rearing, carp polyculture (fish), broiler rearing and tailoring (Halder, 1998; Halder and Husain, 1999). It was found that among women who were involved in fish farming and broiler rearing, more than 70 per cent had started their business after joining BRAC. Around 91 per cent of women tailors had been full-time housewives before joining BRAC. For all those women learning silk-worm rearing this was a new activity. In broiler rearing, along with the management of rearing practices, the variety of poultry, proper feeding and timely vaccination of birds, are the key factors affecting profitability. The supply of day-old chicks, proper feeding of birds with quality feeds and timely vaccination are very important factors affecting profitability. To ensure the timely availability of all these services, BRAC made official contact with the government and other private organizations. In areas where there is an imbalance between market supply and demand, BRAC directly intervenes. For example, the existing market cannot fulfil the current demand for day-old high-yielding variety (HYV) chicks and the high-quality poultry feeds necessary for HYV poultry rearing. To ensure the availability of day-old chicks and high-quality feed at a reasonable price, BRAC established a number of poultry farms and feed mills. BRAC also trained some paraprofessionals among experienced poultry rearers to ensure timely vaccination; these provide their services to the farmers by charging a token lump-sum amount. Studies show that more than 90 per cent of broiler rearers received these services from BRAC on time; 92 per cent of the rearers reported that they received BRAC s help in marketing their products. All those who received training found it very useful. Profitability analyses at farm level show that, due to BRAC s intervention, the average income of fish farmers increased by 33 per cent and the Table 6. Income differentials by loan and training received Loan received No. (%) of respondents Income (US$) Without training With training Without training With training Yes 361 (87.2) 127 (98.4) *** No 53 (12.8) 2 (1.6) Average 414 (100) 129 (100) *** Source: Impact Assessment Study II of BRAC s Rural Development Programme , BRAC *** significant at 1% level 32 June 2003 Small Enterprise Development Vol.14 No.2

8 Table 7. Cost-effectiveness of BRAC s BDS for different economic activities (US$ annual/per cycle per beneficiary) Name of the activity Total training costs Fee income Income-cost ratio (%) Pond fish polyculture Broiler rearing Tailoring Sericulture Average Sources: Halder and Husain (1999); Halder (1998) The sums earned as a result of the BRAC training exceed by several times the amount paid to BRAC income of broiler rearers increased by 40 per cent. The increase in income for tailors and silk-worm rearers was 100 per cent due to BRAC s training, since all of the women were full-time housewives before they received the training. Cost-effectiveness of BDS services other than credit There are two different ways of calculating cost-effectiveness. A service can be treated as cost-effective if the amount charged by the agency for its services covers at least the cost of these services. For service recipients, the service may be cost-effective if it helps increase income levels such that the additional income earned after receiving the services is higher than the service charge paid. As mentioned earlier, the three major cost items for BRAC are: the selection of prospective clients suitable for a given income-generating activity, the provision of training, and extension services. The estimated annual costs for BRAC to each fish farmer and tailor were US$7.4 and US$10.8 respectively. The cost of services provided to each broiler rearer was estimated at US$9.4 for a production cycle (1.5 2 months). The service fee charged by BRAC covers 60 per cent of the total cost in pond fish polyculture, 106 per cent in broiler rearing and 25 per cent in tailoring. Altogether service fees recover 47 per cent of total costs for BRAC (Table 7). The sums earned by each member as a result of the BRAC intervention exceed by several times the amount paid to BRAC (Table 8). This implies that for BRAC women members, BRAC s service package was useful and cost-effective. They could afford to pay BRAC s full cost if they were able to ensure sustainable income growth. Conclusion Two different issues are discussed in this paper. The first issue is about the role of skills development training and other business development services provided by BRAC on women s income growth. The second one is about the cost-effectiveness of BDS from both the service provider s as well as the service recipients points of view. Empirical evidence presented here shows that microcredit has had significant impact on increasing the income of rural poor women involved in different self-managed income-generating activities. It shows that those who received skills training, along with credit, earned significantly higher income. It implies Small Enterprise Development Vol.14 No.2 June

9 Table 8. Cost-effectiveness of BRAC provided BDS for the clients of different economic activities (Annual/per cycle per beneficiaries) Name of the activity Service fee paid to Average net income Income-cost BRAC (US$) increase (US$) ratio(%) Pond fish polyculture Broiler rearing Tailoring Sericulture Average Sources: Halder and Husain (1999) and Halder (1998) BRAC should charge more for its training services that the credit-plus approach followed by BRAC is more effective for increasing income compared to the credit-only approach. The second issue discussed in this paper is the cost-effectiveness of business development services, i.e. the cost-effectiveness of plus things in microcredit. Results show that for BRAC the fees charged for services covered only 47 per cent of the total cost. To make its services more costeffective, BRAC should charge more. The case studies show that for the BDS recipients, the additional amount gained exceeded by many times the amount paid to BRAC as a service charge. It implies that the service package offered by BRAC is highly cost-effective to them. Even though study results found BRAC services highly cost-effective to its clients, a tendency among its recipients to default has been observed in recent years. Usually the non-financial service recipients are also BRAC s microfinance borrowers, and there is a misconception among them that BRAC is charging them twice for the same services. They think that the microfinance charges they pay include the costs of the total BRAC service package and that, therefore, they should not have to pay for the non-financial services. There is also an element of overlapping, as some BRAC beneficiaries are involved in multiple activities and receive several nonfinancial services, which ultimately increases the total cost. Another important element is that all the BRAC-promoted sector activities are input intensive, and beneficiaries have to purchase their supplies from BRAC due to their non-availability in the local market. All this adds to the complexity of service delivery and creates confusion among the recipients and the local BRAC staff. Maintaining separate accounts for different types of service delivery, and pressure from the top to achieve 100 per cent of targets also increase costs but hinder the quality of output. To improve clients access to services and also to minimize direct costs, in recent years BRAC has made several changes in its service delivery. Greater emphasis is now given to creating demand for the service package, and instead of providing services directly to all of its clients, BRAC has developed a large number of private paraprofessionals from among its successful entrepreneurs who are mainly responsible for delivering BRAC s day-to-day services for a particular sector at a small charge. Part of their routine activities includes selling BRAC-supplied inputs to all microentrepreneurs, for which BRAC offers them commission. They also keep in regular contact with the private entrepreneurs and from time to time sit with BRAC s field-level staff to receive updates on recent developments in the field. 34 June 2003 Small Enterprise Development Vol.14 No.2

10 REFERENCES Abed, F. H. (2000) Micro-credit, poverty and development: the case of Bangladesh, Behind the Headlines, Canada s International Affairs Magazine, Vol. 57, No. 2/3, pp BRAC (2000) BRAC Annual Report 1999, p. 8. Chowdhury, A.M.R. and A. Alam (1997) BRAC s poverty alleviation programme: what it is and what it achieved, in Wood, G. D. and I.A. Sharif (ed.) Who needs credit? Poverty and finance in Bangladesh, The University Press Limited, Dhaka, Bangladesh, pp Funk, Mark and Jack Strauss (2000) The long-run relationship between productivity and capital, Journal of Economic Letters, Vol. 69, pp Halder, Shantana R. and A.M. Muazzam Husain (1999) Case studies on costeffectiveness of BRAC-provided services in selected enterprises, BRAC. Halder, Shantana R. (1998) Cost-benefit analysis of BRAC s sericulture programme, BRAC. Khandker, S.R. (1998) Fighting poverty with microcredit: experience in Bangladesh, The University Press Limited, Dhaka, Bangladesh. World Bank (2002) Poverty in Bangladesh: building on progress, South Asia Region, World Bank. Small Enterprise Development Vol.14 No.2 June